Smithtown Bancorp Announces Second Quarter Earnings

SMITHTOWN, NY--(Marketwire - July 29, 2009) - Smithtown Bancorp (NASDAQ: SMTB), the parent
company of Bank of Smithtown, today announced earnings for the second
quarter of 2009 of $3.413 million, or $.26 per share, beating analyst
estimates by 2 cents per share, but down compared to $.31 per share during
the first quarter of this year. Earnings were reduced by the industry-wide
FDIC special assessment during the second quarter to replenish losses to
the deposit insurance fund caused by bank failures during the past year.
In addition to its regular quarterly deposit insurance premiums, Bank of
Smithtown incurred a one-time special assessment of approximately $1.1
million in the second quarter. Without this charge, earnings would have
been $4.052 million, up 12% from the previous quarter. EPS would have been
$.31, including the impact of the additional shares issued on May 20th in
connection with the Company's $30 million common stock offering.

Net income for the first six months of this year was $7.029 million, or
$.56 per share. Fully diluted earnings per share for the last twelve
months now stand at $1.30.

Total deposits grew by 7% during the second quarter, or by $113 million.
During the first six months of this year, total deposits increased by more
than $416 million, or by 30%. During the same six months, core deposits
increased by 27%. At June 30, 2009, 77% of the Bank's deposits were in
core deposits.

The Bank's deposit growth continues to be aided by shifts in the
competitive marketplace and by the development of its new branches. The
Bank opened four new branches last year, two new branches in the first
quarter of this year, and its newest branch in West Hempstead this week.
The six newest branches open during the second quarter have gained $195
million in deposits so far this year, representing 47% of this year's
deposit growth.

The Bank presently expects to open six more new branches this year. The
Great Neck branch will open next week. The East Northport office is
expected to open by the end of August. The Bank also expects to open new
branches in East Setauket, St. James, Deer Park and Babylon by the end of
this year.

Loans grew during the second quarter by $148 million, an increase of 8%.
Virtually all of the net loan growth for the second quarter was in
amortizing mortgage loans on commercial and residential properties. For
the first six months of 2009, loans have grown by $282 million, or by 17%.

For the past seven quarters, the Bank has continued a trend of reduced
construction lending and increased multi-family lending. At September 30,
2007, land and construction loans constituted 31% of the total loan
portfolio and multi-family loans represented 8% of total loans. At June
30, 2009, land and construction loans have been reduced to 20% of total
loans, while multi-family loans have concomitantly increased to more than
20% of the total portfolio.

At quarter's end, commercial mortgage loans comprised 46% of the overall
portfolio, multi-family loans comprised 20% of the portfolio, land and
construction loans were also at 20%, and one-to-four family residential
mortgage loans represented approximately 11% of the total portfolio.

For the loan growth during the first six months of this year, 12% of the
growth has been in "owner-occupied" commercial mortgages. The Bank has
sought to emphasize these types of loans due to their historically safe
nature. For example, the loan might be made to a group of professionals
for the building in which they conduct their practice. Other commercial
mortgage loans constitute 39% of the growth so far this year. Multi-family
residential loans comprise 33% of the growth, and one-to-four family
residential loans comprise 13% of the growth.

The loan "pipeline" of approved but unfunded commitments at June 30, 2009,
was $192 million, down from the March 31st level of $230 million, but still
up considerably from the 2008 year-end level of $147 million. For the past
two years, the loan pipeline has generally run at levels between $150-250
million, and the Bank has usually closed 80-90% of the loans in the
pipeline within 90 days. The loan mix in the pipeline continues to reflect
the shift away from construction lending and toward more permanent mortgage
lending.

At June 30, 2009, the average balance of a commercial mortgage loan in the
Bank's portfolio was $2.3 million, with an average loan-to-value ratio of
53% and an average yield of 6.52%. The average balance of a multi-family
residential loan was $3.5 million, with an average loan-to-value ratio of
64% and an average yield of 6.09%. For one-to-four family residential
mortgage loans, the average balance was $622,328, with an average LTV of
48% and an average yield of 6.25%.

Nonperforming loans at quarter-end increased to $29.6 million, or 1.50% of
total loans. Most of the increase is attributable to two loans. The first
is a $7.9 million home loan on a "brownstone" on the upper east side of
Manhattan which has been discussed in the previous quarter's press release
and other public filings. The home was originally appraised at $11.85
million, and was recently reappraised at $10.3 million. The second loan is
for $8 million on 195 acres of land appraised at $19 million. More
detailed information about the Bank's nonperforming loans and asset quality
can be found on the investor page of the Bank's website at
www.bankofsmithtown.com. In any event, in spite of the increase, the 1.50 %
nonperforming loan ratio remains significantly lower than the ratio of
3.02% for the peer group of 316 banks in the nation with assets from $1
billion to $3 billion.

Loans 30-89 days past due were at $19.9 million, or 1.01 % of total loans.
Most of this category consists of two loans, both of which are secured by
valuable real estate. Two smaller loans in this category totaling
approximately $1 million were brought current subsequent to June 30th. In
any event, again, the Bank's ratio of 1.01% compares favorably with the
peer group ratio of 1.51%.

Net charge-offs for the second quarter were approximately $102,000,
representing less than .01% of average loans. As has been the case in the
past, the losses come mostly from the consumer and small business loan
portfolios, which represent a very small percentage of total loans.

The net interest margin for the second quarter increased by 30 basis points
to 3.06%. During the first quarter, net interest margin was significantly
reduced by an unusually rapid inflow of new deposits early in the quarter.
During the second quarter, as anticipated, the margin steadily improved as
the funds were employed into loans and investment securities. Net interest
margins for the months of April, May and June were 2.87%, 3.14% and 3.17%,
respectively. Net interest margin for the first six months was 2.92%, and
the Company expects that figure to continue to improve steadily.

For the first six months of 2009 total noninterest income increased on a
year-over-year basis by $143,000, mainly the result of net securities gains
of $522,000 taken during the first quarter offset by a $255,000 net
impairment loss during the second quarter on two pooled trust preferred
securities with other than temporary impairment. These two securities have
a total estimated fair value as of June 30,2009, of $1,343,000.

The Company's efficiency ratio for the second quarter moved slightly higher
to 60.52%. The primary reason for this increase, as discussed earlier, is
the $1.1 million cost to our Company for the industry-wide FDIC special
assessment. In addition, as discussed in last quarter's earnings release,
regular quarterly FDIC insurance premiums have more than tripled, now to
more than $600,000 per quarter. These dramatic increases are a consequence
of healthy banks having to pay the FDIC's costs to resolve failed banks.
Other areas of noninterest expense, such as those associated with the
Bank's new branch program, have grown proportionately and as anticipated.
Even with the large increases in FDIC expense, the Bank's efficiency ratio
of 60.22% for the first six months of 2009 remained substantially better
than the peer group ratio of 68.88%.

The Company's capital ratios remain strong and in the "well-capitalized"
range. At June 30, 2009, the ratio of tangible equity to assets was 6.35%.
The Tier I Leverage ratio was 8.49%, the Tier I Risk-Based capital ratio
was 10.60%, and the Total Risk-Based capital ratio was 11.64%. All of the
regulatory ratios are significantly above the minimum level required to be
considered "well-capitalized." And, of course, the Company's Total
Risk-Based capital ratio moved higher with completion of the Company's most
recent offering of $14 million of subordinated notes on July 27, 2009. As
mentioned in the press release announcing completion of that offering, the
Company does not currently contemplate any additional capital offerings in
the near future.

The Company's Chairman & Chief Executive Officer, Brad Rock, commented:
"Given the difficulties of these economic times, we believe that our
results for the quarter are moderately successful. We have a strong
capital base, we continue to grow loans and core deposits at a strong pace,
and we continue to grow our revenue. Expenses are higher than we would
like, but most of that is attributable to economic factors beyond our
control, such as unprecedented FDIC insurance costs. Without these costs,
we would be growing net income at a double-digit pace, which would make the
additional capital we have raised accretive to earnings per share quickly.

"With respect to asset quality, as I have said previously, in this economic
environment, we expect the number of slow-paying and non-paying customers
to be higher than usual for a while. With more than five million people
having lost their jobs and more than 6,000 bankruptcies being filed every
day, it would be unrealistic for us to expect that none of those events
will touch Bank of Smithtown. At the same time, however, because 97% of
our loans are secured by mortgages on real estate, usually protected with
wide loan-to-value ratios, we do not expect large, unmanageable losses in
spite of the dim economic environment."

Mr. Rock added: "At the same time we weather the difficulties of the 'Great
Recession,' we continue to take advantage of marketplace disruptions to
build our customer base on both the loan and deposit sides of the ledger.
Our new branches have been very successful, helping us to grow core
deposits by 53% over the last twelve months. We fully expect the new
branches that open later this year and next year will be equally
successful."

He concluded: "In a report released two weeks ago, the Federal Reserve
Board said that while it expects the nation's economic pains to continue
for the next few months, it also expects the recession to end by the end of
this year. The Fed cited a long list of reasons for its improved economic
outlook including more stable consumer spending, the bottoming of home
sales and higher household wealth. Whatever the precise timing of the
economic recovery, we at Bank of Smithtown remain confident that we will
continue to weather the nation's economic difficulties, and we expect to
emerge from the storm as an even stronger and more profitable community
bank."

With more than $2.3 billion in assets, Bank of Smithtown is the largest
independent commercial bank headquartered on Long Island. Founded in 1910,
Bank of Smithtown is nearing its 100th anniversary as a community bank.
The stock of its parent holding company, Smithtown Bancorp, is traded on
the NASDAQ Global Select Market under the symbol "SMTB." The Company has
often been rated as one of the best banks in the United States by various
magazines and rating services, including most recently being ranked #9
among community banks throughout the nation by US Banker magazine in June.

Forward-Looking Statements

Certain statements contained in this release that are not statements of
historical fact constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Act"),
notwithstanding that such statements are not specifically identified as
such. In addition, certain statements may be contained in our future
filings with the Securities and Exchange Commission, in press releases, and
in oral and written statements made by us or with our approval that are not
statements of historical fact and constitute forward-looking statements
within the meaning of the Act. Examples of forward-looking statements
include, but are not limited to: (i) projections of revenues, expenses,
income or loss, earnings or loss per share, the payment or nonpayment of
dividends, capital structure and other financial items; (ii) statements of
our plans, objectives and expectations or those of our management or Board
of Directors, including those relating to products or services; (iii)
statements of future economic performance; and (iv) statements of
assumptions underlying such statements. Words such as "believes,"
"anticipates," "expects," "intends," "targeted," "continue," "remain,"
"will," "should," "may" and other similar expressions are intended to
identify forward-looking statements but are not the exclusive means of
identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause
actual results to differ materially from those in such statements. Factors
that could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to: local,
regional, national and international economic conditions and the impact
they may have on us and our customers and our assessment of that impact,
changes in the level of non-performing assets and charge-offs; changes in
estimates of future reserve requirements based upon the periodic review
thereof under relevant regulatory and accounting requirements; the effects
of and changes in trade and monetary and fiscal policies and laws,
including the interest rate policies of the Federal Reserve Board;
inflation, interest rate, securities market and monetary fluctuations;
political instability; acts of war or terrorism; the timely development and
acceptance of new products and services and perceived overall value of
these products and services by users; changes in consumer spending,
borrowings and savings habits; changes in the financial performance and/or
condition of our borrowers; technological changes; acquisitions and
integration of acquired businesses; the ability to increase market share
and control expenses; changes in the competitive environment among
financial holding companies and other financial service providers; the
quality and composition of our loan or investment portfolio; the effect of
changes in laws and regulations (including laws and regulations concerning
taxes, banking, securities and insurance) with which we and our
subsidiaries must comply; the effect of changes in accounting policies and
practices, as may be adopted by the regulatory agencies, as well as the
Public Company Accounting Oversight Board, the Financial Accounting
Standards Board and other accounting standard setters; changes in our
organization, compensation and benefit plans; the costs and effects of
legal and regulatory developments, including the resolution of legal
proceedings or regulatory or other governmental inquiries and the results
of regulatory examinations or reviews; greater than expected costs or
difficulties related to the opening of new branch offices or the
integration of new products and lines of business, or both; and/or our
success at managing the risk involved in the foregoing items.

Forward-looking statements speak only as of the date on which such
statements are made. We undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which such statement is made, or to reflect the occurrence of
unanticipated events.